Borrowing for Growth: Big Pushes and Debt Sustainability in Low-Income Countries

Author:

Zanna Luis-Felipe1,Buffie Edward F2,Portillo Rafael3,Berg Andrew1,Pattillo Catherine4

Affiliation:

1. Institute for Capacity Development, International Monetary Fund

2. Indiana University

3. Economic Modeling Division, International Monetary Fund

4. Fiscal and Surveillance Division of the Fiscal Affairs Department, International Monetary Fund

Abstract

AbstractThe paper evaluates big push borrowing-and-investment programs in a new model-based framework of debt sustainability that is explicitly designed for policy analysis. The new framework is grounded in a fully-articulated, dynamic macroeconomic model. It allows for financing schemes that mix concessional, external commercial, and domestic debt, while taking into account the impact of public investment on growth and constraints on the speed and magnitude of fiscal adjustment. Supplementing concessional loans with nonconcessional borrowing in world capital markets is generally a high-risk, high-return strategy. It may greatly enhance the prospects for debt sustainability or lead to spectacular failure; much depends on the fine details governing debt contracts, the dynamics of growth, and the speed of fiscal adjustment.

Publisher

Oxford University Press (OUP)

Subject

Economics and Econometrics,Finance,Development,Accounting

Reference52 articles.

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